Jeff Kittle Solves Puzzles in Guiding Development at Herman & Kittle Properties

6 min read

If you ask Jeff Kittle what he likes about being a tax credit developer, he has a quick answer: “It’s a very interesting, complicated business, oftentimes like a puzzle. And I enjoy challenges.”

Indeed, Kittle has a host of challenges at any given moment as president & CEO of Herman & Kittle Properties, Inc., a real estate company with about 400 employees that has seen rocket-like growth in recent years.

“Since the recession of 2008, we’ve more than doubled in size both people wise and in our portfolio,” says Kittle.

The vertically integrated company based in Indianapolis, Ind., with roots back to 1948, develops, designs, constructs and manages apartment properties and self-storage facilities in the Midwest, Gulf, and Southeast regions. There is no nexus between the apartment properties and the 12 self-storage facilities, only diversification.

Apartments in 13 States

“We have a portfolio approaching 11,000 apartment units in 13 states,” says Kittle. These properties, most developed by the company and supplemented by acquisitions, are located in Illinois, Indiana, Kansas, Kentucky, Michigan, Ohio, Wisconsin, Louisiana, Mississippi, Oklahoma, Texas, Florida, and Georgia. The company develops in these same states and is aiming to expand into Nebraska, South Carolina, and Alabama.

While Herman & Kittle’s development focus is on these 16 states, Kittle says the firm is open to acquiring apartment properties and existing partnerships just about anywhere. “We’ll evaluate deals even if they’re outside our footprint.”

By the end of 2014 Herman & Kittle will have developed more than 100 LIHTC properties.

Roughly 80% of the company’s apartment properties are affordable while 20% are market-rate. The former have utilized either 9% or 4% low-income housing tax credits, sometimes with federal rent subsidies layered on.

According to Kittle, the 9% tax credit projects that the company develops are typically 50 to 100 units, while the 4% deals tend to be 150 units and larger. Properties targeting families are the company’s bread and butter; only 10%-15% are restricted to seniors. The properties range from single-story structures to four-story buildings.

In about half of its 9% deals, Herman & Kittle has a nonprofit partner, either as a co-general partner, a service provider, or in both roles. In 4% projects the company is normally the sole GP.

The firm raises LIHTC equity from both syndicators and direct investors, but has an affiliate that syndicates a few deals a year.

Altered Development Pattern

Herman & Kittle’s LIHTC development pattern has changed since the recession.

“From the inception of the tax credit program in 1987 up through the mid-2000s, most of what we did was new construction,” says Kittle. “But in the last seven years or so we’ve added in preservation and rehab projects and more urban transactions as well.”

For example, in May the company closed on a 150-unit Section 8 preservation deal in the Atlanta area. Oak Forest Apartments involves the acquisition and rehabilitation of 19 existing two-story garden walk-up buildings in a transaction being funded by tax-exempt bonds, equity generated by 4% housing credits, and other sources. Rents on all of the apartments will continue to be subsidized by project-based Section 8 rental assistance.

Another change by the company has been in the location of new LIHTC transactions. Before 2007, projects were generally in fringe suburban areas. Since then, this product type has been supplemented with more urban and rural deals. According to Kittle, the expansion to preservation and more urban/rural deals has been driven by local market needs and provisions in state qualified allocation plans.

Development Operation

Herman & Kittle’s development division is supervised by R.J. Pasquesi, who manages multiple teams assigned to specific regions of the country. Each team is run by a development director or a vice president of development who lives and works in the region (covering two or three states), and is responsible for finding deals, networking with brokers, landowners, and others, and keeping close tabs on the state housing finance agency and its QAP.

In 2013, the company developed or acquired 16 multifamily projects, 13 of which were affordable. “This year,” says Kittle, “our plan is for 19 deals, including one market-rate.”

Some of the company’s affordable developments include:

  • Lafayette Landing at Kessler, in Indianapolis, a new construction, low-rise LIHTC property containing 56 one- and two-bedroom apartments for seniors 55 and older. Developed a few years ago in partnership with a local nonprofit, the property was built on a site once occupied by a vacant strip shopping center that was demolished to make room for the housing.
  • Commons at Little Bark Creek, in Fremont, Ohio, a new construction development that received a housing credit award in the spring that will feature “multi-generational units” for occupancy by seniors or seniors living with their families. The 66-unit project is being developed in partnership with a local nonprofit. The amenities will include walking paths, raised gardens, and gathering spaces for residents.
  • Beacon Pointe Townhomes, in Hamilton, Ohio, a new apartment complex containing 60 LIHTC, Section 8, and public housing units for families created on the site of a former public housing project, in partnership with the Butler Metropolitan Housing Authority.

Challenges, Background

A native of Indianapolis, Kittle attended Indiana University, where he obtained a BA in History and Political Science and an MBA in Finance and Real Estate.

After a stint at Indiana’s housing finance agency, Kittle became a developer in 1998 when he joined the predecessor company of Herman & Kittle Properties. Kittle says his time at the state HFA – learning about the LIHTC program, deal structures, and funding sources – prepared him for a career change to development of affordable housing.

As for his main challenge today as an affordable housing developer, Kittle observes, “Making sure we have the right structure and team in place across the company.

“Over the last six months particularly we’ve seen a tightening up in the labor force across pretty much all functions. The unemployment rate’s going down so people have more choices now than they did during the recession. It’s harder to get and retain people.”

Kittle cites the challenge not only in attracting new corporate staff but also in finding and keeping contractors. He notes that some contractors who shifted into multifamily rental construction during the recession have returned to building homes with the recovery of the single-family housing market.

“There’s upward pressure on construction costs as well,” he adds.

Hobbies, Focus

In his rare spare time, Kittle loves to golf and go skiing with his family, particularly his two young daughters, 10 and 11. “They’re expert skiers. We’ll ski all day with limited or no distractions.”

For now, though, Kittle stays busy focusing on his company, its activities, and guiding it for continued future success.

“I’m excited about our business and the opportunities going forward and I love the industry we’re in. I look forward to continuing to grow our company and our people.”